Divergent views on the outlook for the U.S. and the global economy, the direction of the financial markets and the role of alternatives in clients’ portfolios, marked the discussion among chief investment officers at the fourth annual Innovative Alternative Investment Strategies conference in Denver.

“People talk about the great bull market since 2009. All the market’s done is come back to where it was in 2007,” said Mark Yusko of Morgan Creek Capital Management during a panel discussion at the conference hosted by Financial Advisor and Private Wealth magazines.

Yusko told advisors that people erroneously assume bear markets mean big drops. “A bear market is just a period of time where you don’t make any returns. And it usually lasts about 17 to 20 years, depending on history. I think we’re about 13 years through this 20 year period of no returns on equities,” he said.

To emphasize his point, Yusko told the audience that Wall Street analysts think corporate earnings will rise 14 percent in the next 12 months. He asked for a show of hands indicating agreement. One person from the audience of several hundred raised his hand.

Calamos Investments’ Gary Black painted a very different picture. “The equity markets have been on fire the last couple of years,” he said.

Black said the economy is probably mid-cycle in a bull market, with earnings up about 30 percent since 2009. Over the next three to five years, the economy should continue to improve. But the recovery thus far has been choppy. “People are still worrying about going back into recession because Europe’s a mess and China’s slowing and our own economy’s ‘three steps forward, two steps back,’” he said.

Brad McMillan of Commonwealth Financial Network was more pessimistic. He said most of the gains have already occurred. “Longer term, I do think we’re going to see a sustained recovery, but we’re going to see constrained equity returns,” he told the audience.

McMillan said the arguments both for and against further stock market advances are equally valid. “Frankly, we don’t know. Either way, you’re explicitly making a bet on what you expect beta to do.”

McMillan said he’s very reluctant to tell advisors to put their clients in beta-reliant portfolios. “Responsible financial advising right now involves constructing portfolios that don’t require one particular forecast to come forward,” he said. McMillan said he prefers alternatives that don’t require the market to go up, such as convertible strategies.

Event-driven strategies are also an option. For example, merger-arbitrage strategies can provide returns that are not correlated with the market. George Kellner of Kellner Capital, a pioneer of the risk arbitrage business, told the audience that increased merger-arbitrage activity is a bit of a leading indicator that things aren’t so bad economically. “Basically, merger-arbitrage is an active strategy. It’s a high-alpha business. I don’t really need to prognosticate about whether markets are going up or down for my business to flourish,” he said. All that’s necessary is a positive business cycle. Kellner thinks the economic recovery in this country, and perhaps in the rest of the world, is underway.

Liquid alternatives are another option. Kellner said they combine some of the best attributes of hedge funds and mutual funds, such as the superior analytics of hedge funds, along with the more attractive fee structures, transparency and liquidity of mutual funds.

Despite the panelists’ different global and domestic economic and market outlooks, they agreed that bonds are not the place to put clients’ funds in the near term. McMillan said he’s telling clients to take risk off the table by shortening up durations on the fixed-income side. “The incremental return for lengthening duration simply is not worth it,” he said. Yusko recommended completely avoiding traditional U.S. and European corporate bonds. “I see no value to those in a portfolio today when you can do risk arbitrage and bond arbitrage,” he said.

Bearish Yusko said the U.S. has still not fully recovered and Europe is in a recession. But he sees real opportunity in Japan, with corporate earnings up 57 percent this year. He thinks the Japanese equity market will significantly outperform the U.S. equity market in the next six to 36 months.

Yusko also likes private equity and hedge funds, which have underperformed for the last three years. As hedge funds tend to underperform/outperform in three-year cycles, he’s expecting them to outperform for the next three years.

Bullish Black said investors don’t want to put money into alternative assets because the stock market is going up. In a slowly-recovering economy, investors are right to seek out equities. “Growth looks ridiculously cheap versus value today,” Black said. He thinks emerging markets will come back and long-short equity, merger-arbitrage and market-neutral positions will do well in the current environment, and going forward.

So what’s the takeaway from four of the top CIOs in the financial services industry?

No one has a crystal ball. Hedge accordingly.